November 10, 2012
Insurance law
Fee statute win for plaintiffs attorneys, loss for policy holders
By Jason Wolf
Daily Business Review
The official end of hurricane season
is near. And here in South Florida
we escaped without any devastating
catastrophes, but we continue to
watch one-third of
the nation dig out
from the
aftermath of
Hurricane Sandy.
Although the
season may be
drawing to a close,
another will begin
too soon; now is a
good time to explore the way
property insurance litigation is
rapidly changing the legal landscape
in Florida.
While South Florida hasn’t faced
a major hurricane since Wilma came
and went on Oct. 24, 2005, we had
two named storms this season. This
means that claims are in the works
— and many will become lawsuits
over the next three to six months.
First-party property lawsuits —
when a policyholder sues an
insurance company, usually because
the insurer denied their claim or
paid less for a claim than the
policyholder believed was
warranted — are popular among
plaintiff attorneys because of a
statute that the general public
doesn’t pay much attention to but is
key for the plaintiff’s bar: Florida
Statute 627.428 awards attorney
fees to lawyers who successfully
obtain a judgment against an
insurance company.
Wolf
Cashing in
The statute doesn’t limit fees by
percentage or by dollar amount,
which can occasionally lead to
absurd results. For example, a
plaintiff/policyholder wins a few
dollars in a lawsuit, but the attorney
wins more than $100,000 for
litigating the case through final
verdict.
Since SB 408 was enacted into
law, after a contentious fight in the
legislature, there has been a
tangible rise in these first-party
property lawsuits.
Plaintiff attorneys see the fee
statute as a win–win for everyone.
They know that insurers usually
settle cases rather than risk the
potentially devastating situation in
which the plaintiff wins a little bit of
money at trial, but the insurer is
stuck with a massive legal bill, both
to its own defense attorneys and to
the plaintiff attorney. This means
firstparty
property
lawsuits
have
become a volume based business for
many plaintiff firms. And insureds
who become plaintiffs have little to
lose.
It’s much easier — and almost
always cheaper — for the insurer to
settle the case.
BOARD OF
CONTRIBUTORS
Stacked deck
There is another reason
insurance companies are reluctant
to take first-party property cases all
the way to trial: bad faith. If the fee
statute is the Holy Grail, bad faith is
nirvana for plaintiff attorneys.
Bad faith is governed by statute
624.155 of the Florida Statues for
the Insurance Code regarding civil
remedies, and it means just what it
sounds like: the insurance company
acted unfairly to its policyholder,
either specifically for the claim at
issue or in its general claims
handling practices.
To even bring a bad faith claim, a
policyholder needs to first
establish liability on the part
of the insurer, usually through
a breach of contract lawsuit.
This means bad faith is an
entirely separate lawsuit that the
insurance company has to defend if
it risks going to trial in the initial
lawsuit and losing the breach of
contract action.
The deck is heavily stacked against
insurers.
More attorneys, more litigation
SB 408 also placed limitations on
the earnings and business practices
of public adjusters.
Initially, when states started
creating the concept of public
adjusters, it was a well-intentioned
concept by which public adjusters
would adjust claims on behalf of the
public — instead of on behalf of
insurance companies — and help
unsophisticated policyholders deal
with insurance companies. As time
progressed, public adjusters, who
earn a contingent percentage of the
insured’s recovery, became
increasingly looked upon as
problematic by the insurance
industry because of the perception
that they could manufacture higher
than needed estimates, merely so
that they could obtain a percentage
of the recovery.
The inherent and glaring flaw in
the process whenever a public
adjuster is involved may result in an
unscrupulous or self-serving public
adjuster inflating the estimate so he
can increase his own recovery is
self-evident. This is not to say that
every public adjuster is out to cheat
the insurance company, but the
increases in litigation and claims
has tarred all public adjusters with a
broad brush — whether deserved
or not.
SB408 placed limits on what
public adjusters could earn and
numerous limitations on their
business practices and contingency
percentages. As a result, there are
now more lawsuits in which public
adjusters are not involved in the
process at all.
This means that attorneys are
becoming involved in lawsuits from
the beginning. A few years ago, a
policyholder who had an insurance
claim would call the insurer to file a
claim directly. Now the policyholder
immediately turns this work over to
an attorney, It used to be a rare
occurrence when I defended
lawsuits in which the plaintiff’s
attorney was involved from the getgo. These days, it happens
approximately 75 percent of the
time.
On a practical level, it’s difficult to
argue that more of these types of
lawsuits are a benefit to either the
policyholder or the insurance
companies. On the one hand, with
an attorney working for you from
day one, you can probably be
confident that your rights will be
protected.
But, if the attorney’s sole goal is
to work up the case, then settle it
after discovery but before trial so he
can get his fees — and then move
onto the next one — is the
policyholder really benefiting? No
doubt there are some instances in
which having an attorney from day
one may be helpful, such as for a
major loss. But are attorneys really
necessary every time your toilet
overflows and the baseboard gets a
little soggy? Does anyone benefit
besides the plaintiff attorney?
The industry’s future
So what does the future hold for
the property insurance industry?
Will insurance companies lobby
for changes to the fee statute? If
attorneys couldn’t get fees for suing
insurance companies, this practice
area would be reduced to a fraction
of its present condition, as attorneys
would only become involved in
large-dollar lawsuits and
policyholders with smaller claims
would be unable to find legal
redress.
As claims increase, and insurance
companies are forced to spend more
money on defense attorneys, who
do you think will eventually bear
the brunt of the increase in
spending? It will eventually trickle
down to the policyholders in the
form of increased premiums.
As with many legal practice areas
that come and go over the years in
response to changes in the law, firstparty property litigation is currently
thriving. How long this lasts is
anyone’s guess.
Jason Wolf is a shareholder at the
firm of Koch Parafinczuk & Wolf in
Fort Lauderdale. His practice focuses
on first-party property insurance
defense.